Lender of Last Resort

by L. Carlos Lara

Editor’s Note: This article was first published in July 2018, but is still relevant because “The source of inflationism can be politically varied, but certainly the mechanical instrument for setting it in motion rests solely with the Federal Reserve, the institution that controls the nation’s money. Recognizing this fact, as a starting point, is immensely important in stopping inflation altogether.”

Former Dallas Federal Reserve President, Richard Fisher, publicly dressed down President Trump in a recent interview with CNBC in response to Trump’s remark that he’s “not thrilled” about the Fed’s interest rate hikes. Obviously, Trump’s comment upset Fisher quite a bit and he told CNBC that by making that comment “Trump is out of line.” ¹

The Federal Reserve has raised interest rates twice this year and anticipates hiking rates three times in all in 2018.  They are tightening and contracting credit. This will be a total of six-interest rate hikes since the 2008 financial crisis. President Trump, like many people who delight in having low interest rates, had merely expressed his dislike of these recent increases. He thought these rate hikes were coming at the wrong time and were hampering his hard work at piecing together the broken U.S. economy. Nevertheless, he did also state in the interview that he had full confidence in Jerome Powell, the man he had picked to run the Federal Reserve.

But Fisher apparently took the President’s comment altogether different. He saw the President’s comment as interfering with the Fed’s independence. Without mincing words, CNBC reported Fisher saying:

“One of the hallmarks of our great American economy is preserving the independence of the Federal Reserve. No president should interfere with the workings of the Fed. Were I Chairman Powell, I would ignore the president and do my job and I am confident he will do just that.”²

Amazing—what arrogance! Yet this sampling of absurd comments gives us a slice of the type of news quibble the public gets day in and day out. It’s no wonder naïve individuals remain ignorant of the real world mechanics of our flawed current monetary policy and stay confused. The late Austrian economist Murray Rothbard was right when he said,

“The Federal Reserve, virtually in total control of the nation’s vital monetary system, is accountable to nobody—and this strange situation, if acknowledged at all, is invariably trumpeted as a virtue.”³ — From The Case Against The Fed, 1994

Fisher’s remarks in this CNBC interview are a classic case in point.

The Fed—The Commercial Banker’s Bank

The real issue here really is the frightening self-governance of the Federal Reserve. But along with this fact is that the interest rate that everyone is all worried about is not a natural market rate of interest. The Federal Reserve is the perpetuator of these interest rate movements. These manipulations are what cause the booms and the destructive busts that have occurred in our economy for decades. If we all just knew and understood this important fact common sense would tell us that a so-called federal agency like the Fed should not have the absolute authority to do this sort of thing. Yet this is exactly what they do and with full permission from the government—but for what purpose?

Unfortunately, the average modern American is not able to grasp either the significance of this money manipulation or the significance of this dictatorship-type control over the nation’s purse strings.  I know this state of ignorance exists because that was exactly my intellectual condition at one time, before Austrian economics came into my life.

It is this widespread ignorance on the part of the American public that helps explain how over the course of one hundred years the Fed has been able to position itself with the image of the financial savior of the economy.  This has been accomplished through a steady diet of cleverly designed propaganda leading right up to that secret meeting at Jekyll Island, off the coast of Georgia, between the seven wealthiest men in America. The men that framed the Federal Reserve were Wall Street titans, bankers, and politicians.  Even in a nation that prides itself in a government of checks and balances, something obviously went terribly awry back in 1913 during the establishment of this institution that regulates itself.

In order to reverse this illiterate condition the veil that conceals the mystery of the Fed must be pierced by exposing the public to the truth.  You can discover this truth all on our own if you will take it upon yourself to do serious research from credible sources. If you are new to the LMR or perhaps new to this subject matter let me admonish you to read the book that Bob and I wrote, How Privatized Banking Really Works

There you will discover that contrary to what people say and believe the Federal Reserve exists solely to protect and create profits for its owners, the commercial banks, and no one else.

While today’s Federal Reserve masquerades itself before the public as a fully transparent government entity that specializes in combating the ravages of price inflation and providing jobs for American unemployed workers, their official mandated autonomy amounts to nothing more than a privileged form of fraud—one of the greatest swindles of all time. In short, the Federal Reserve is the commercial banker’s bank.

The government, who is always in need of money, is all but dependent on the Federal Reserve to provide that money when it needs it, especially when tax revenues fall short of meeting its annual expenditures.  Since this is almost always the case, taxing the people is never the best solution because it is not politically popular. Consequently the indirect tax of inflation presents itself as the only viable alternative.

“One and only one aspect of the common legend that is indeed correct: that the overwhelmingly dominant cause of the virus of chronic price inflation is inflation, or expansion, of the supply of money.”⁴ — Murray Rothbard

Ludwig von Mises, one of the champions of the Austrians, pointed out in his new edition of Theory of Money and Credit, which contains a newer section written in 1952, that the original reason the U.S. Government mandated the existence of the Federal Reserve in the first place has long since evaporated. The antiquated claims of John Maynard Keynes were extremely seductive as the ultimate fix for the economy, but were built on faulty assumptions that would eventually lead to long-term economic problems. This is exactly what we have today and the problems are more severe than ever.

“The tragic error of nineteenth-century bank doctrine was the belief that lowering the rate of interest below the height it would have on an unhampered market is a blessing for a nation and that credit expansion is the right means for the attainment of this end. Thus arose the characteristic duplicity of bank policy. The central bank or banks must not lend to the government, but should be free, within certain limits, to expand credit to business. The idea was that in this way one could make the central banking function independent of the government.

Whatever the merits or demerits of this point of view may have been in older days, it is obvious that it is no longer of any consequence. The main inflationary motive of our day is the so-called full-employment policy, not the treasury’s incapacity to fill its empty vaults from sources other than bank loans.” ⁵

After each calamitous bust there is always major unemployment and a new opportunity for the Federal Reserve to work its magic.  By simply reflecting on what has occurred in the years after the 2008 financial crisis ight up to today in 2018, the Federal Reserve, operating with impunity and its own agenda, is wholly responsible for the greatest transfer of wealth and income to the Wall Street commercial bank nexus in U.S. history.  It alone is responsible for having blown up, once again, the biggest asset bubble ever in the history of the United States that will eventually explode causing more economic harm than what we have ever experienced in our lifetime.

Getting to the Truth

The great difficulty of making the public aware of the true condition of our country has grown exponentially in just the last three years. It’s as though no one is really interested in knowing the truth. Suddenly, almost overnight, we have been plunged into a new age of undisguised and shameless lies. Much of it is pouring directly out of Washington, D.C. Not that this is anything new for virtually every human institution on the face of the earth has spread falsehoods with intent to cover up, distort, or erase the truth since time immemorial. But here, more recently, we have a new form of deliberate misinformation. Defined narrowly as “fake news,”⁶ this type of information is being disseminated by traditional print and broadcast news media and especially by online social media, which is fraudulent content.

Due to the rise of the Internet in recent decades with its various apparatuses and the shift to 24/7 news broadcasting, just about Just about every aspect of the world and its people comes to us in mega doses daily. every aspect of the world and its people comes to us in mega doses daily.  Competition for the public’s attention has had the effect of increasing the use of tabloid-type headlines with only half truths or no truths at all in order to gain market share. The sole measure for its dissemination is being determined by whether it is “clickworthy” or not.  Money and power, of course, are behind much of its growth, but using this new form of journalism for political reasons has escalated and reached new heights since the 2016 Presidential elections.

In March of 2017 producers of the 60 Minutes news program set out to investigate this phenomenon and discovered during interviews with fake news fabricators that disseminating lies was like an addiction. The program’s anchor in talking about his interview guest said, “The more hits he got, the more of a rush it was.”⁷

To put this in context we are talking about individuals who rack up 6-8 million page views on their websites and 83 million Twitter users in a single month with all of the information being disseminated, by most measures, deliberately, and by any definition, completely fabricated.  Even more surprising to the 60 Minutes producers was the fact that these individuals believe everything they say and print. “One of the issues with this story, with this topic, is that there is a basic fundamental disagreement right now in the country about what is false information,” 60 Minutes reported. “And that is a place where really we haven’t gone before.”⁸

A recent New York Times article reached a very similar conclusion. “Fake news, and the proliferation of raw opinion that passes for news, is creating confusion, punching holes in what is true, causing a sort of fun house effect that leaves the reader doubting everything, including real news.”⁹

Where they see the real danger is that it has pushed up the political temperature and increased polarization of the nation. Since any one can pick up and use this journalistic weapon, fake news has become a political battering ram between the liberals and conservatives “with the left accusing the right of trafficking in disinformation, and the right accusing the left of tarring conservatives as a way to try to censor websites. In the process, the definition of fake news has blurred.”¹⁰

What can we say about a nation that has lost its way and reached this point of unreality? I am reminded of the great prophet Isaiah, who thousands of years ago according to the Scriptures was instructed by God to warn the people to change their ways or else. For those of us who still use this ancient document as a measure for what is real and what is not, one can’t fail to miss the sobering tone.

“Woe unto them that call evil good, and good evil: that put darkness for light; and light for darkness.” — Isaiah 5:20

U.S.A. Forever

While none of us would wish harm to come to the nation we live in there are a few of us that can’t fail to see the writing on the wall and are rightfully concerned if America does not change its ways. While here at the LMR we are certainly not an authority on all facets of human life, we feel confident in our knowledge of financial markets and monetary policy and much of what we see in our economic world from our vantage point are alarm bells going off everywhere.

We are a very proud nation. When the powerful jet fighters fly over our great spectator sports we are in a real sense pounding our chest to the world that we have the mightiest military on the planet. Now the “USA FOREVER” slogan appearing on the new U.S. postage stamp brags of our nation’s invincibility to everyone who receives a letter.

But all this too should remind us of another ancient document written by the great philosopher-theologian; Augustine of Hippo entitled, The City of God.¹¹ Written during the actual fall of Rome in 410 A.D. Augustine documents how the people were in absolute shock over their beloved, all-powerful, indestructible Rome, as it crashed and burned all around them.

In its very extensive introduction in my personal copy of this book, the author details out some of the obvious distortions that occurred as Rome went from a Republic to an Empire. One of these was the increase of bureaucracy that was intent on underpinning personal imperial power with titles and insignias to display their importance and like the Emperor they surrounded themselves in mystery. If you wanted an audience with these bureaucrats you had to pass, literally, through a series of veils.

Conclusion

The source of inflationism can be politically varied, but certainly the mechanical instrument for setting it in motion rests solely with the Federal Reserve, the institution that controls the nation’s money. Recognizing this fact, as a starting point, is immensely important in stopping inflation all together.

Viewed from an Austrian School perspective, inflation by all accounts, is a self-defeating monetary policy. It produces more evils than the evils it is attempting to cure. Hence continued use of inflation must invariably lead to an economic collapse and even worse.

Making the public aware of every aspect of this dilemma is critically important, but has become increasingly more difficult to do in an age where right and wrong has become relative. This, of course, points to a moral degeneration in society where a lie is now spoken as though it was the truth.

To escape this present environment and learn what you can do for your own household and business, Nelson Nash, David Stearns, Bob and I have created several resources of education that are sure to assist you. In addition to the LMR, pick up a copy of our newest book, The Case for IBC. Listen to our podcast, The Lara-Murphy Show. If you are a financial professional look into our IBC Practitioner Program. Visit our websites often. We have a plan that will get us through the financial stranglehold regardless of our present circumstances and will allow us all to teach others the way to financial freedom.

References

1. Trump lays into the Federal Reserve, says he’s not thrilled about interest rate hikes, Article by Jeff Cox, CNBC, Published 1:01 PM ET Thu, 19 July 2018 Updated 6:31 PM ET Fri, 20 July 2018 https://www.cnbc.com/2018/07/19/trump-lays-into-the-fed-says-hes-not-thrilled-about-interest-rate-.html?__source=newsletter%7Cbreakingnews
2. https://www.cnbc.com/2018/07/19/trump-lays-into-the-fed-says-hes-not-thrilled-about-interest-rate-.html?__source=newsletter%7Cbreakingnews
3. The Case Against the Fed, by Murray N. Rothbard, Published by the Ludwig von Mises Institute, Auburn, Alabama, 368495301, Introduction: Money and Politics, page 3
4. The Case Against the Fed, by Murray N. Rothbard, Published by the Ludwig von Mises Institute, Auburn, Alabama, 368495301, Introduction: Money and Politics, Page 9
5. The Theory of Money and Credit, by Ludwig von Mises, First published in 1934 in Vienna, Austria, Published in the U.S. by The Liberty Fund, Indianapolis, Indiana. This edition includes Part Four, Monetary Reconstruction, written in by Ludwig von Mises in 1952 and first appeared in the 1953 American edition of Yale University Press.
6. Fake News, Wikipedia, The Free Encyclopedia, Article, July 30, 2018 https://en.wikipedia.org/wiki/Fake_news
7. What’s “Fake News?”60 Minutes Producers Investigate, March 26, 2017 https://www.cbsnews.com/news/whats-fake-news-60-minutes-producers-investigate/
8. What’s “Fake News?”60 Minutes Producers Investigate, March 26, 2017 https://www.cbsnews.com/news/whats-fake-news-60-minutes-producers-investigate/
9. As Fake News Spreads Lies, More Readers Shrug at the Truth, New York Times article by Sabrina Tavernise, December 6, 2016 https://www.nytimes.com/2016/12/06/us/fake-news-partisan-republican-democrat.html
10. As Fake News Spreads Lies, More Readers Shrug at the Truth, New York Times article by Sabrina Tavernise, December 6, 2016 https://www.nytimes.com/2016/12/06/us/fake-news-partisan-republican-democrat.html
11. St. Augustine, Concerning The City of God against the Pagans, Published by the Penguin Group, Penguin Group, Ltd, 80 Strand, London, England, First published in 1467, Reissued with a new introduction, notes and chronology, in Penguin Classics, 2003